WASHINGTON – They have been through a financial crisis. Two deep recessions. Heaps of student debt. Fixed wage. Costly healthcare. Dim job prospects.
They have watched the uber empires get richer as a pandemic left tens of millions of people out of work and many more isolated and vulnerable at home.
Now, they feel, it is time for payback.
Nearly a decade after the Occupy protest movement left Wall Street more or less unscathed, the financial citadel could face another attack.
Mobilized on a subreddit page, day traders have poured all the money they can find into the stock of a struggling video game retailer called GameStop and a few other downed companies. Their purchases have driven the stock prices of those companies up unimaginably – and, not coincidentally, caused enormous losses to the hedge funds of the super rich, who had placed bets that the stocks would fall.
Their strategy is of course fraught with risks. The prices of the stock they bought are now multiples above any level justified by earnings, earnings or future outlook. The danger is that the files can collapse at any time.
Maybe. But as one Reddit user wrote on Friday, claiming that hedge fund funders would drink champagne while looking down on Occupy Wall Street protesters in 2011:
“I’d rather lose it all than give them what they need to destroy me … I’ll burn it all down to resent them.”
Their anger and hellish drive to attract powerful Wall Street financiers have shivered ordinary investors and raised fears about the vulnerability of the markets in general after a protracted period of equity gains fueled by ultra-low interest rates. Those fears only caused the S&P 500 index to experience its worst week of losses since October.
GameStop shares? They shot up nearly 70% on Friday. In the past three weeks, they have made an astonishing 1,600% gain.
“They figured out how to play the way Wall Street has been playing for a long time,” said Robert Thompson, who has long followed cultural trends as director of Syracuse University’s Bleier Center for Television and Popular Culture. “I’m amazed it hasn’t happened before.”
The madness was fueled by young traders like 27-year-old Zach Weir, who bought five shares of GameStop this week.
“I’m a college student, so that’s basically a month’s rent for me,” said Weir, who is pursuing a master’s degree in marketing.
He did it, he said, because he believes in the cause: protecting a cherished game store where he hung out on Friday nights as a teenager from financial tycoons who want the company to fail.
And if he loses his investment?
“If my account goes to zero, it goes to zero,” Weir said. “At the moment it’s not about the money. I think this is bigger than the money now “
Frustration and anger at the growing financial inequality in the US economy has been growing for years. According to the World Inequality Database, managed by University of California economists Emmanuel Saez and Gabriel Zucman, the richest 1% of Americans collected about 19% of pre-tax income in 2019, compared to less than 11% four decades earlier. Berkeley, along with other researchers.
New York University economist Edward Wolff has found that the richest 10% of Americans own about 85% of the equity, a share that has grown steadily over time.
The financial crisis that triggered the Great Recession of 2007-2009 reinforced resentment towards the bankers who had funded the unreliable loans behind the catastrophe and ignored the obvious risks, only to receive bailouts from taxpayers and be largely accountable escape. Growing outrage fueled the Occupy movement, in which protesters took over New York’s Zuccotti Park and other public spaces demanding far-reaching financial reforms that mostly did not take place.
The coronavirus caused even more pain, flattened the economy and caused more than 20 million Americans to lose jobs. This week, a report by the anti-poverty group Oxfam found that the world’s 10 richest men have increased their collective wealth by $ 500 billion since the pandemic broke in March. Meanwhile, nearly 10 million people who have lost their jobs due to the pandemic remain unemployed.
The stock market, the chosen target of the day traders on Reddit, has long stood as America’s premier symbol of deep-seated wealth. But technology, including forums like Reddit, has made it increasingly easier, faster, and simpler for those affected to mobilize, exchange information and jointly plot a strategy. And e-trading apps, especially Robinhood, allow amateur traders to buy commission-free stocks with one click.
They saw a vulnerability in the market: the so-called short squeeze.
When hedge funds and other investors want to bet that a stock price will fall, they arrange a short sale: they borrow shares from, say, GameStop. Then they sell those borrowed stock, and plan to buy the stock back later at a lower price and pocket the profit.
But a short circuit can backfire catastrophically if the stock goes up rather than down. Then the short sellers can be forced to jump out of their bets by buying the target shares. Their purchases, in turn, can drive the stock price higher and higher and make the situation worse for short sellers in an increasingly intensive feedback loop.
GameStop, whose future is jeopardized by ecommerce and a pandemic that has kept customers at bay, is one of the most short-circuited stocks. Some of the Reddit rebels are gamers who want to protect the shopkeeper from Wall Street’s predation. Or just give a fair blow to hedge funds and funders who have lived big as others have suffered hardships.
Not all day traders are turned on by anger. They just see an opportunity to make money and pay bills.
“A lot of people have a hard time paying rent,” said Alexis Goldstein, a veteran of the Occupy movement. “Many people run the risk of being evicted. Quite frankly, many people are very desperate for new ways to make money. ”
Still, Goldstein is concerned that the rebellion will ultimately fail.
For a start, some of the Wall Street companies targeted by the Redditors are actually taking advantage of the volatility that the Redditors’ attack has caused.
And the most sophisticated professional traders are no doubt calculating how to take advantage of the chaos. Normally, they have to work hard and invest heavily to determine what their competitors are doing and take advantage of that information. In contrast, the Reddit day traders are making their intentions bold and publicly known.
“I suspect it is not Robinhood investors and Redditors making money,” said Goldstein.
She would like to see another set of reforms – reforms to curb Wall Street’s excesses while helping those left behind.
“Hopefully we can ask fundamental questions about whether we want our markets to be speculation-driven or whether we want them to create innovation and jobs,” she said. ”
Tom Osran, a 59-year-old Chicago attorney, has been reading the WallStreetBets forum on Reddit for years. But it wasn’t until last week that he decided to get into action for the first time by purchasing GameStop. His investment, he said, is up 1,000% from last week, although he declined to disclose the dollar amount.
Osran said he thinks the astronomical surge in stock could save GameStop from hedge funds betting that a company with 40,000 employees will fail.
“It’s nice to be part of a movement,” Osran said.
He knows he can lose anything he put into GameStop stock. Yet he is philosophical.
“We are all adults, we all know that stocks can go up and down,” Osran said. “It has been insanely lucrative so far, but it could all be gone by tomorrow.”
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Pisani reported from New York.